2009 (10) TMI 558 - HC - Income Tax

TDS u/s 194C - Whether the freight payments made by the assessee Society to the truck owners who were also the members of the society, were subject to deduction at source in view of section 194C(2), being payments made to the truck owners in their capacity as Sub-Contractors. - Held that - Section 194C(2) of the Act is not attracted and the assessee Society(s) is not liable to deduct tax at source on account of payments made to the truck owners who are also members of the society.

Summary

Issues involved:
1. Whether freight payments made by the assessee Society to truck owners, who were also members of the society, were subject to deduction at source under section 194C(2) as payments made to sub-contractors.

Comprehensive analysis:
The High Court of Himachal Pradesh deliberated on the issue of whether the assessee Society was liable to deduct TDS under Section 194C(2) of the Income Tax Act for payments made to truck owners who were also members of the society. The assessees, registered Cooperative Societies except for one unregistered association, entered into contracts with companies for transporting goods. The companies deducted TDS as per Section 194C(1) before paying the assessee Society. The Society then distributed the payment to its members after deducting nominal "parchi charges." The Revenue contended that TDS should be deducted under Section 194C(2) from payments to members. The Assessing Officer favored the Revenue, but the Commissioner and Tribunal ruled in favor of the assessees, stating no sub-contract existed between the Society and its members.

The Revenue argued that since the assessees were persons making payments to resident truck operators, TDS should be deducted under Section 194C(2). However, the Court disagreed, emphasizing that the principle of mutuality did not apply in this case. The Court highlighted that the heading of Section 194C referred to payments to contractors and sub-contractors. It was noted that the Society was formed by truck operators to facilitate contracts with companies, and the members were essentially the owners of the Society. While the Society and members had separate legal identities, the purpose of the Society was to ensure equitable distribution of work among members. The Court found that no sub-contract existed between the Society and its members, as the Society acted on behalf of members for contractual purposes.

Ultimately, the Court held that Section 194C(2) was not applicable, and the assessees were not obligated to deduct TDS on payments to truck owners who were also members of the society. The judgment favored the assessees, concluding that the Society's payments to members did not fall under the purview of Section 194C(2). The Court resolved all appeals in favor of the assessees, ruling against the Revenue's contention for TDS deduction on payments to truck owners who were Society members.